Derive the portfolio metrics

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Reference no: EM132607438

1. You are given information concerning a series of fixed-rate bonds that constitute a portfolio. Assume each security has a face value of \$100 and pays coupons semi-annually. Derive the portfolio's metrics:

Holdings \$ Investment weights % Coupon % Yield to Maturity % Duration (Years)
Bond 1 \$25,000,000 - 2.75% 1.16% 3.60
Bond 2 \$75,000,000 - 3.10% 2.22% 4.52
Bond 3 \$200,000,000 - 1.65% 1.89% 9.96
Bond 4 \$60,000,000 - 0.75% 1.02% 2.78
Bond 5 \$175,000,000 - 2.25% 2.45% 6.65
Portfolio - - - - -

2. Following on from above Question, derive the portfolio's modified duration and compute the sensitivity of the portfolio to a change in its yield to maturity. Assume a change of 35bps occurs in either direction. For this exercise, the portfolio's aggregate value is \$100 and there is no convexity.

3. Recompute the metrics of the portfolio in Question 1 assuming each security contributes equally to the portfolio. Discuss why the equally weighted portfolio is an effective attribution tool?

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